LETTER TO ROBERT GATES FROM WILLIAM F. MARTIN

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90G00152R000500720001-5
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 14
• Document Creation Date: December 23, 2016
• Document Release Date: August 19, 2011
• Sequence Number: 1
• Publication Date: April 2, 1987
• Content Type: LETTER

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THE FOLLOWING DOCUMENTS
ARE ATTACHED:
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SUBJECT:
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EXECL3`I'IVE SECRETARIAT
ROUTING SLIP
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Exe~orive aec~etory
8 Apr '87
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April 2, 1987
Mr. Robert Gates
Acting Director
Central Intelligence Agency
Washington, D.C. 20505
I want to take this opportunity to thank you for all the support
the Agency provided the Department of Energy during our review
of energy-related national security concerns. As you are aware,
the President ordered this review as a result of his concern
that U.S. energy security was being threatened due to the 1986
oil price collapse. The recently completed report will serve as
the framework for U.S. energy policy during the remainder of
this Administration.
to
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been completed in a timely manner
and anal tical su ort rovid d b the
CIA. M
cially
without the hard work
The Deputy Secretary of Energy
Washington, DC 20585
in NESA for
espe-
Their expertise in the
would also like to extend my thanks
his insights and valuable contribu-
finally, I'd like to recognize
loan from you, who served as the Chief
t e w o e project.
The Agency has made a significant contribution to the energy
policy debate in the United States and should be commended for
its role in the process. I look forward to our continued close
cooperation.
Sincerely,
DCI
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The Director of Central Intelligence
Washington, D.C.20505
National Intelligence Council
NIC 01342->7
25 March -1937
SUBJECT: Energy, Natural Resources and the Environment Working Group
Meeting on Energy Security
1. The ENRE Working Group rnet to define the terms of reference of a
follow-up study on energy security for the EPC. At the EPC presentation of
the unclassified DOE study last week, some Cabinet members argued that the
paper did not fully address or define the issue of energy security.
2. Bill hlartin, who attended the ENRE Working Group session, is
preparing a short paper based on the attached outline. I told Martin that
the paper should include a better definition of energy security perhaps,
redefining the issues as economic vulnerabilities, geo-political interests,
and defense concerns. Framed in this way, I thought that the CIA would be
better positioned to comment on energy threats in the 1990s without tripping
over the politically sensitive domestic policy issues of energy taxes or
import fees. Alan Larson, State Deputy Assistant Secretary for
International Energy and Resources Policy, Stephen Danzansky, NSC, and I
will conspire to write a paper which will properly defines energy security.
3. Lastly, Martin suggested to me that the Acting OCI might want to say
a few words on energy security and stability in the Persian Gulf when the
energy security study is again presented to the EPC next week.
~~~~
cc:~ec Staff
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Deane E. Hoffmann
National Intelligence Officer for Economics
OGI (Room 3G31)
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THE WHITE HOUSE
WAS H I N G T O N
March 20, 1987
THE ENVI RONMEI`'T
l
RALPH C. BLEDSOE
SUBJECT: Meeting March 24, 1987
The E*;RE Working Group will meet on Tuesday, March 24, 11:00 a.m.
in Room 248 of the Old Executive Office Building.
The Group will review the Department of Energy analysis of the
national security threat and the various options outlined. The
next DPC/EPC meeting on energy is tentatively scheduled for the
week of March 30.
Bill Martin is preparing a paper for the discussion. The Council
has asked that the Working Group look at:
1. determining whether we now face a national security
threat from oil imports, and if so, how great a threat;
2. evaluating the options to deal with the national security
threat;
3. developing recommendations for dealing with potential
Congressional actions; and
4. developing other recommendations for the President's
review, to ensure we are adopting the best economic
policies related to energy.
The Council directed that the Working Group rely on existing
studies, particularly regarding the energy security threat.
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EXECUTtYE SECRETARIAT
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18 Mar ' 87
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Best Regards,
William F. Martin
Deputy Secretary of Energy
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THE SECRETARY OF ENERGY
WASHINGTON, O.C.
March 17, 1987
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87-1165X
I am pleased to forward to you the Department of Energy
review of energy-related national security concerns, requested by
President Reagan in response to declining domestic oil production
and rising oil imports.
This report, "Energy Security," was conducted with
interdepartmental and interagency technical support and counsel.
It covers all aspects of U.S. energy supply and demand -- and
their implications for our energy security.
Based on this report, there is justification for national
concern over the declining competitiveness of our domestic oil
and gas industry and rising oil imports. I have enclosed a copy
of a letter to the President in which I have recommended the
steps I believe should be taken in response to this situation. I
strongly commend these recommendations and this report to members
of the Administration as a focal point for further discussion of
energy security.
Yours truly,
W ~
~V,
John S. Herrington
Honorable Robert Gates
Deputy Director
Central Intelligence Agency
Washington, DC 20250
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THE SECRETARY OF ENERGY
WASHINGTON, O.C.
March 16, 1987
The President
The White House
Washington, DC 20500
Dear Mr. President:
I am pleased to transmit the Department of Energy review of
energy-related national security concerns which you requested in
response to declining domestic oil production and rising oil
imports. This review, "Energy Security," covers all aspects of
U.S. energy supply and demand -- and their implications for our
energy security.
This report shows that, while our energy security remains
strong in the short term, there is justification for national
concern over the declining competitiveness of our domestic oil
and gas industry. Although we have made progress toward enhanc-
ing energy security in the last six years, we can only ensure
continued security with a viable domestic energy industry -- and,
in particular, a vigorous petroleum industry. Even with continued
conservation and efficiency and substantial contributions from
other energy resources, like coal, nuclear energy and renewables,
our economic and energy security is inextricably tied to the fate
and fortunes of our domestic petroleum industry through this
century.
It is clear that the weakening of our domestic oil infra-
structure holds the potential for significant, detrimental rami-
fications for our energy and national security if action is not
taken. Although falling domestic oil production and increasing
dependence on foreign oil pose a different set of problems from
those that existed at the onset of this Administration, they
represent a perhaps more difficult and complex challenge. The
need to address this energy challenge is no less urgent than when
the Nation was confronted with two oil supply interruptions in the
1970s.
As the report documents, the suddenness and severity of the
oil market collapse of 1986 has devastated significant segments
of the U.S. petroleum industry. Marginal oil production has been
shut in; development of high cost and enhanced oil recovery proj-
ects has been postponed; and exploration in frontier areas has
been slowed. Expenditures in 1986 for exploration and development
dropped by 30 percent among major oil companies and by 50 percent
or more among independents.
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Coupled with the production decline is increased consumer
demand for oil, which has resulted in a rise of one million barrels
per day in U.S, imports. -Our projections show that continuation
of present market trends will accelerate the decline in U.S. pro-
duction, stimulate more consumption, and continue severe impacts
in oil producing areas of the country. Thfis turn of events could
leave U.S. energy security in jeopardy. This and other scenarios
and projections are described in more detail in the report.
Much has already been done during this Administration to
strengthen the domestic oil industry and remove impediments to
the exploration for oil and gas. With your leadership, Federal
price and allocation controls on oil have been eliminated and the
Economic Regulatory Administration has been sharply reduced.
Needed oil and gas tax incentives like the treatment of intangible
drilling costs were preserved in the tax reform bill. In the past
year, we've won approval of two federal Energy Regulatory Commis-
sion orders, Orders 436 and 451, that should move the natural gas
industry much closer to a market base. The Securities and Exchange
Commission, with our persuasion, retained full-cost accounting
provisions that are vital to independent petroleum producers.
Government regulations that would have forced the capping of
stripper wells on Federal lands were lifted. Since you took
office, the Strategic Petroleum Reserve has been increased five-
fold to more than 516 million barrels. We have also worked with
our allies to expand their strategic stocks, recognizing that
energy gains by this Nation can be lost unless complementary
policies are pursued overseas.
Still other steps need to be considered and more must be
done. Along with our continued support of the clean coal program,
nuclear licensing reform, Price-Anderson reauthorization, and
increased investment in basic science, as an absolute mininum we
need to continue to aggressively seek enactment of the many oil
and gas initiatives proposed by the Administration last year,
which are as follows:
o Repeal of the Windfall Profit Tax, which currently produces
virtually no revenue and is a counterincentive to industry
investment;
o Comprehensive natural gas reform, including wellhead price
decontrol, mandatory contract carriage and demand restraint
repeal, which would encourage the production of an estimated
30 trillion cubic feet of additional gas, the equivalent of
5.3 billion barrels of oil; and
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o Adoption of key regulatory reform provisions of the 1986 Oil
and Gas Production Revitalization Act. Specifically:
-- Extending the Environmental Protection Agency deadline to
report to Congress on the degree of hazard from oil and gas
production wastes;
-- Clarifying the exemption for small temporary collection
devices from underground storage tank regulations called
for in the 1984 Hazardous and Solid Taste Amendments, where
there are negligible environmental impacts;
-- Permitting land treatment and recycling of oil and gas
wastes when studies have demonstrated that the practices do
not threaten public health or the environment.
However, these measures alone aren't enough -- and, in many
cases, they won't provide the kind of immediate incentives that
are needed to counter an even greater slide in domestic capacity
and provide the potential for increased domestic production. It
is imperative that, in addition to pressing for the initiatives
that have already been proposed, we address this need -- and the
need to provide incentives to longer-term oil and gas exploration.
Based on my review of the costs and benefits of the options
available, there are several principal tax incentives, along with
other necessary long-term steps, that I recon~nend for your endorse-
ment and which I propose to bring before the Domestic Policy
Council and the Cabinet for appropriate review and evaluation:
o An increase in depletion allowances (or a floating depletion
allowance) up to 27} percent for all oil and gas producing
properties and for new and enhanced recovery production.
This action would encourage investment in reserve additions
and lead to an increase in exploration and development of new
oil and gas as well as an increase in revenue to the hard-hit
oil services industry;
o Repeal of the transfer rule to allow independent producers to
use percentage depletion allowances on properties bought from
major oil companies. This change would encourage small
independents to buy such properties and continue to operate
them, thus keeping marginal wells in production;
o Increasing the net income limitation on oil and gas production
to 100 percent. This increase would encourage the continued
operation of some marginal oil properties whose operation would
otherwise be discontinued and bring some added investment to
new oil projects;
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o Expensing of geological and geophysical costs in the same
manner as intangible drilling costs. This initiative would
directly encourage exploration activity leading to development
of new reserves;
o Resolution of the impasse over oil and gas development of the
Outer Continental Shelf, now tying up an estimated 2 to 5
billion barrels of oil;
o Environmentally sound oil and gas exploration and prudent
energy-related development of the Arctic National Nildlife
Refuge coastal plain, which may have "in place" oil of up to
30 billion barrels; and
o Maintenance of a strong Strategic Petroleum Reserve fill rate
to reinforce deterrence against an oil supply interruption.
Adoption of these and previous proposals, according to our
estimates, will result in approximately one million additional
barrels per day in increased domestic oil production. On balance,
the increased production, related economic growth and reduced
reliance on foreign oil imports far outweigh the alternative of
increasing imports, which primarily benefits oil-exporting nations.
Furthermore, these proposals achieve these objectives in a cost-
effective manner as opposed to proposals like the oil import fee
which carry a sizable net economic loss to the Nation.
In my estimation, this additional domestic oil production
will provide an absolutely critical margin of energy security that
is essential to our economic and national security based on the
conclusions and threat to energy security outlined in this report.
Respectfully,
John S. Herrington
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DOE. 5-0057
ENERGY
SECURITY
A REPORT TO THE PRESIDENT
OF THE UNITED STATES
UNITED STATES DEPARTMENT OF ENERGY
WASHINGTON, DC 20585
March 1987
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